Increasing the role of government during economic turmoil is not a novel concept. Some believe people are hungrier for an extra helping of Washington stew at times like this. And President Obama, along with Democrats in Congress, seem more than willing to serve it up.
But something is missing. Government spending and more borrowing can only provide temporary stimulus. The economy needs a different food to spur growth longer-term.
Right now, however, those meals are missing from the menu. In fact, Obama and Democrats in Congress seem headed in the opposite direction — creating a host of new programs and obligations on borrowed money, without also adding components that will stimulate more enduring economic growth.
Democrats’ version of rented prosperity is particularly troubling to independent voters. Democratic pollster Doug Schoen told Politico’s Ben Smith last week, “This is a huge sea change that is playing itself out in American politics. Independents who had become effectively operational Democrats in 2006 and 2008 are now up for grabs and are trending Republican.”
And independent angst is justified. This borrow-and-spend drama has already played out in other parts of the world. Obama and the Democrats are engaged in economic déjà vu, and many Americans know it.
Ryan Streeter, a former top domestic policy staffer in the White House for President George W. Bush and now a senior fellow for the London-based Legatum Institute underscores this point in a recent article published on Newgeography.com. During the past decade, Britain’s supercharged financial sector fueled the growth of an expansive state that promised to protect citizens from life’s vagaries. But as the economy slowed, Streeter notes, the UK found itself with unmanageable new social obligations but not the funds to pay for them. “In order to maintain social welfare goals amidst a floundering economy, the UK has financed its shortfall through massive debt. If debt payments were a government agency, it would be the fourth largest in Britain,” he writes.
Sound familiar? Unfortunately there’s more. The British Labour Party also proposed to pay for its new spending by “taxing the rich.” But these schemes haven’t produced the projected revenues. Tax receipts in the UK “have mainly hovered around 35 percent of GDP regardless of the tax rate during the past 30 years. This means that raising tax rates–such as Labour’s proposal to lift the top tax bracket to 50 percent–has little effect as high earners move away or find other ways to protect their assets,” Streeter argues.
This week House Democrats unveiled a UK-like plan of their own to pay for health care, proposing a new “tax-the-rich” surtax on the incomes of high wage earners. “Combined with other federal tax adjustments, the surtax could leave most taxpayers with annual incomes more than $350,000 facing top federal rates of at least 45 percent,” Robert Carroll senior fellow at the non-profit Tax Foundation told the Washington Post. The current top rate is 35 percent.
It’s ironic that a president who so vehemently rejected the “failed policies of the past,” seems determined to pursue them anyway. Expanding the government and growing the economy are not the same things. Edward Lazear, chairman of the President’s Council of Economic Advisors under President George W. Bush from 2006-2009, made this point recently. Commenting on the stimulus legislation, Lazear wrote in the Wall Street Journal last week that the public should be under no illusions: “The current stimulus and calls for a future one are primarily government growth polices, not strategies to shorten the current recession.”
The 2010 midterm elections will provide a first test. Democrats could pay a steep price for continuing to feed a federal government with an insatiable hunger without producing jobs and economic growth. Real Clear Politics writer Jay Cost agrees. Economic growth is the true American ideology, he wrote on his blog last week. “Left, right, or middle–the average American wants prosperity. When the majority party fails to deliver growth after having been elected to do so–the electoral consequences can be significant.”
I recently saw a man wearing a t-shirt that said “Work, Not Hope.” It was a not-so-subtle reminder of a hard truth. Promises of increased economic security brought to you by the public sector sound comforting and appealing, but policies that produce real jobs by incentivizing entrepreneurs pay both personal bills and the government’s.
Gary Andres is vice chairman of research at Dutko Worldwide in Washington, D.C., and a regular contributor to THE WEEKLY STANDARD Online.
